UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[x] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2002
-----------------------------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE EXCHANGE ACT
For the transition period from to
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Commission file number 0-30680
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First Federal of Olathe Bancorp, Inc.
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(Exact name of small business issuer as specified in its charter)
Kansas 48-1226075
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
100 East Park Street, Olathe, KS 66061
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(Address of principal executive offices)
( 913 ) 782 - 0026
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(Issuer's telephone number)
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(Former name, former address and former fiscal year,
if changed since last report)
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.
Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 496,471 COMMON STOCK, PAR VALUE
$.01 PER SHARE, AS OF JULY 12, 2002
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [x]
FIRST FEDERAL OF OLATHE BANCORP, INC.
FORM 10-QSB
THREE AND SIX MONTHS ENDED JUNE 30, 2002
PART I - FINANCIAL INFORMATION
Interim Financial Information required by Rule 10-01 of Regulation S-X and Item
303 of Regulation S-B is included in this Form 10-QSB as referenced below:
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets at June 30, 2002 (Unaudited) and December 31, 2001................3
Consolidated Statements of Income (Unaudited) for the Three Months and
Six Months Ended June 30, 2002 and 2001...................................................4
Consolidated Statement of Changes in Stockholders' Equity (Unaudited) for the
Six Months Ended June 30, 2002.............................................................5
Consolidated Statements of Cash Flows (Unaudited) for the Six Months Ended
June 30, 2002 and 2001.....................................................................6
Notes to Consolidated Financial Statements (Unaudited)........................................7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS...........................................................9
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.......................................................................15
ITEM 2. CHANGES IN SECURITIES...................................................................15
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.........................................................15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.....................................15
ITEM 5. OTHER INFORMATION.......................................................................15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K........................................................16
Signatures...................................................................................17
FIRST FEDERAL OF OLATHE BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30, DECEMBER 31,
2002 2001
-------------------------------------
(Unaudited)
ASSETS
Cash and cash equivalents:
Cash and non-interest earning deposits $ 11,347 $ 317,541
Federal funds sold 9,100,000 8,300,000
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Total cash and cash equivalents
Held-to-maturity securities, at cost 3,000,000 5,500,000
Available-for-sale securities 1,870,671 1,847,909
Federal Home Loan Bank stock, at cost 380,000 380,000
Loans, net of deferred loan fees and allowance for loan losses 38,471,169 38,414,852
Accrued interest and dividends 333,652 331,605
Equipment, net of accumulated depreciation 5,165 8,081
Other real estate owned
157,774 217,882
Refundable income taxes -- 117,918
-------------- -------------
Total assets $ 53,329,778 $ 55,435,788
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits $ 36,366,459 $ 37,670,610
Dividends payable 90,393 93,844
Advances from borrowers for taxes and insurance 176,153 1,190
Interest payable on deposits 92,468 54,044
Advances from the Federal Home Loan Bank 4,000,000 5,000,000
Accrued expenses 89,951 85,530
Deferred income taxes 269,697 289,802
Income taxes payable 21,581 --
-------------- -------------
Total liabilities 41,106,702 43,195,020
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STOCKHOLDERS' EQUITY
Common stock, $.01 par value, 4,000,000 shares authorized,
556,328 shares issued and outstanding in 2002 and 2001 5,563 5,563
Additional paid-in capital 3,364,346 3,336,145
Retained earnings 10,254,085 9,996,392
Unearned ESOP shares (269,688) (291,696)
Deferred compensation (289,313) (340,203)
Accumulated other comprehensive income
Unrealized appreciation on available-for-sale securities,
net of income taxes of $309,000 in 2002 and $301,000 in
2001 550,216 535,648
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Treasury stock, at cost, 59,857 and 42,602 shares in 2002
and 2001, respectively (1,392,133) (1,001,081)
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Total stockholders' equity 12,223,076 12,240,768
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Total liabilities and stockholders' equity $ 53,329,778 $ 55,435,788
============== =============
SEE NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 3
FIRST FEDERAL OF OLATHE BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
2002 2001 2002 2001
-------------------------------------------------------------------
INTEREST AND DIVIDEND INCOME
Loans $ 809,331 $ 830,616 $ 1,632,368 $ 1,631,729
Investment securities 104,856 194,845 220,481 397,649
Cash and cash equivalents 37,637 50,742 69,518 92,341
Equity securities 4,685 11,072 4,685 13,702
---------- ---------- ------------ ------------
Total interest and dividend income 956,509 1,087,275 1,927,052 2,135,421
---------- ---------- ------------ ------------
INTEREST EXPENSE
Deposits 443,208 448,658 890,604 856,012
Federal Home Loan Bank advances 59,686 89,802 119,171 190,198
---------- ---------- ------------ ------------
Total interest expense 502,894 538,460 1,009,775 1,046,210
---------- ---------- ------------ ------------
NET INTEREST AND DIVIDEND INCOME 453,615 548,815 917,277 1,089,211
---------- ---------- ------------ ------------
NON-INTEREST INCOME
Service charges and other fees 6,639 20,180 11,372 24,512
---------- ---------- ------------ ------------
NON-INTEREST EXPENSE
Salaries and related payroll expenses 70,786 172,772 143,453 203,231
Federal insurance premiums 6,682 5,500 13,365 11,100
Directors' fees 13,820 14,220 28,040 28,440
Occupancy of premises 12,672 10,932 28,436 27,379
Professional fees 64,915 73,299 84,216 116,191
Other general and administrative expenses 355 23,447 59,986 30,570
---------- ---------- ------------ ------------
Total non-interest expense 169,230 300,170 357,496 416,911
---------- ---------- ------------ ------------
INCOME BEFORE INCOME TAXES
INCOME TAX PROVISION 125,100 87,500 220,000 247,500
---------- ---------- ------------ ------------
NET INCOME $ 165,924 $ 181,325 $ 351,153 $ 449,312
========== ========== ============ ============
EARNINGS PER SHARE - BASIC $ .35 $ .35 $ .73 $ .87
========= ========= =========== ===========
EARNINGS PER SHARE - DILUTED $ .35 $ .35 $ .73 $ .87
========= ========= =========== ===========
SEE NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 4
FIRST FEDERAL OF OLATHE BANCORP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 2002
(UNAUDITED)
COMPRE- ADDITIONAL UNEARNED
HENSIVE COMMON PAID-IN RETAINED ESOP DEFERRED
INCOME STOCK CAPITAL EARNINGS SHARES COMPENSATION
------------------------------------------------------------------------------------
BALANCE, JANUARY 1, 2002 $ 5,563 $ 3,336,145 $ 9,996,392 $ (291,696) $ (340,203)
Net income $ 351,153 351,153
Other comprehensive income
Change in unrealized
appreciation on
available for sale
securities, net of
income taxes of $8,000 14,568
Dividends on common stock
($.20 per share) (90,393)
Compensation cost on awards
issued under recognition
plan 50,890
Purchase of 17,255 shares
of common stock for the
treasury
ESOP shares released 28,201 (3,067) 22,008
---------- ------------ ----------- ------------ ------------ -----------
$ 365,721
==========
BALANCE, JUNE 30, 2002 $ 5,563 $ 3,364,346 $ 10,254,085 $ (269,688) $ (289,313)
============ =========== ============ ============ ===========
ACCUMULATED
OTHER
COMPRE-
HENSIVE TREASURY TOTAL
INCOME STOCK EQUITY
-------------------------------------------
BALANCE, JANUARY 1, 2002 $ 535,648 $ (1,001,081) $ 12,240,768
Net income 351,153
Other comprehensive income
Change in unrealized
appreciation on
available for sale
securities, net of
income taxes of $8,000 14,568 14,568
Dividends on common stock
($.20 per share) (90,393)
Compensation cost on awards
issued under recognition
plan 50,890
Purchase of 17,255 shares
of common stock for the
treasury (391,052) (391,052)
ESOP shares released 47,142
------------ ------------ -------------
BALANCE, JUNE 30, 2002 $ 550,216 $ (1,392,133) $ 12,223,076
============ ============ =============
SEE NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 5
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2002 AND 2001
(UNAUDITED)
2002 2001
-------------------------------------
OPERATING ACTIVITIES
Net income $ 351,153 $ 449,312
Items not requiring (providing) cash
Depreciation 2,916 2,916
Accretion of discounts on securities -- (5,939)
Gain on disposal of other real estate (8,347) (14,253)
Deferred income taxes (28,300) (33,871)
Compensation expense recognized on allocated ESOP shares 47,142 27,613
Compensation expense on 2001 Recognition and
Retention Plan 50,890 112,464
Changes in
Accrued interest and dividends (2,047) (44,917)
Other assets -- 4,868
Interest payable on deposits 38,424 3,582
Accrued expenses 4,421 23,540
Income taxes 139,499 (75,769)
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Net cash provided by operating activities 595,751 449,546
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INVESTING ACTIVITIES
Net originations of loans (56,317) (2,780,060)
Proceeds from sale of other real estate owned 68,456 147,281
Purchase of FHLB stock -- (50,000)
Purchase of held-to-maturity securities -- (750,000)
Proceeds from maturities of held-to-maturity securities 2,500,000 2,100,000
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Net cash provided by (used in) investing activities 2,512,139 (1,332,779)
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FINANCING ACTIVITIES
Net increase (decrease) in deposits
(1,304,151) 6,285,450
FHLB repayments (1,000,000) (1,600,000)
Dividends paid (93,844) (102,364)
Net increase in advances from borrowers for taxes and insurance 174,963 215,520
Purchase of treasury stock (391,052) (943,968)
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Net cash provided by (used in) financing activities (2,614,084) 3,854,683
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INCREASE IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 8,617,541 132,860
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CASH AND CASH EQUIVALENTS, END OF PERIOD $ 9,111,347 $ 3,104,265
============= =============
ADDITIONAL CASH FLOWS INFORMATION
Interest paid $ 971,351 $ 1,042,628
Income taxes paid 125,199 328,122
NON-CASH FINANCING ACTIVITIES
Dividends declared and unpaid 90,393 99,311
Conversion of loan to other real estate owned -- 133,028
SEE NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 6
FIRST FEDERAL OF OLATHE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1: BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments, consisting of only normal
recurring accruals, necessary to present fairly the consolidated financial
position, results of operations, changes in stockholders' equity, and cash
flows for the periods presented.
Certain information and note disclosures normally included in the
Company's annual financial statements prepared in accordance with
accounting principles generally accepted in the United States of America
have been condensed or omitted.
These consolidated financial statements should be read in conjunction with
the consolidated financial statements and notes thereto included in the
Company's Form 10-KSB annual report for 2001 filed with the SEC. The
consolidated balance sheet of the Company as of December 31, 2001 has been
derived from the audited consolidated balance sheet of the Company as of
that date.
The results of operations and other data for the three and six months
ended June 30, 2002 are not necessarily indicative of results to be
expected for the full year.
NOTE 2: EARNINGS PER SHARE
Basic earnings per share is computed based on the weighted average number
of shares outstanding during each year. Diluted earnings per share is
computed using the weighted average common shares and all potential
dilutive common shares outstanding during the period.
The computation of per share earnings for the three and six months ended
June 30, 2002 and 2001 are as follows:
2002
THREE MONTHS SIX MONTHS
---------------------------------
(UNAUDITED) (UNAUDITED)
Net income $ 165,924 $ 351,153
========== ==========
Average common shares outstanding 470,755 478,164
Average common share stock options outstanding 5,306 5,306
----------- ----------
Average diluted common shares 476,061 483,470
=========== ==========
Basic earnings per share $ .35 $ .73
=========== ==========
Diluted earnings per share $ .35 $ .73
=========== ==========
SEE NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 7
FIRST FEDERAL OF OLATHE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
2001
THREE MONTHS SIX MONTHS
---------------------------------
(UNAUDITED) (UNAUDITED)
Net income $ 181,325 $ 449,312
=========== ==========
Average common shares outstanding 517,508 517,508
Average common share stock options outstanding 1,444 1,444
----------- ----------
Average diluted common shares 518,952 518,508
=========== ==========
Basic earnings per share $ .35 $ .87
=========== ==========
Diluted earnings per share $ .35 $ .87
=========== ==========
NOTE 3: DEPOSITS
Deposits at June 30, 2002 and December 31, 2001 are summarized as
follows:
2002 2001
-------------------------------------
(UNAUDITED)
Money market $ 1,466,056 $ 1,860,473
Savings accounts 3,114,527 4,108,028
Certificates of deposit 31,785,876 31,535,420
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$ 36,366,459 $ 37,503,921
============= =============
8
FIRST FEDERAL OF OLATHE BANCORP, INC.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The following discussion compares the consolidated financial statements of
First Federal of Olathe Bancorp, Inc. and Subsidiary (the "Company") at
June 30, 2002 to December 31, 2001 and the results of operations for the
three and six months ended June 30, 2002 with the corresponding periods in
2001. Currently, the business and management of First Federal of Olathe
Bancorp, Inc. is primarily the business and management of First Federal
Savings and Loan Association of Olathe (the "Association"). This
discussion should be read in conjunction with the interim consolidated
financial statements and footnotes included herein.
This quarterly report on Form 10-QSB includes statements that may
constitute forward looking statements, usually containing the words
"believe," "estimate," "expect," "intent" or similar expressions. These
statements are made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. Forward-looking statements
inherently involve risks and uncertainties that could cause actual results
to differ materially from those reflected in the forward-looking
statements. Factors that could cause future results to vary from current
expectations include, but are not limited to, the following: changes in
economic conditions (both generally and more specifically in the markets
in which the Company operates); changes in interest rates, accounting
principles, policies or guidelines and in government legislation and
regulation (which change from time to time and over which the Company has
no control); and other risks detailed in this quarterly report on Form
10-QSB and the Company's other Securities and Exchange Commission filings.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which reflect management's analysis only as of the date
hereof. The Company undertakes no obligation to publicly revise these
forward-looking statements to reflect events or circumstances that arise
after the date hereof.
FINANCIAL CONDITION
Total assets decreased by $2.1 million, or 3.8%, to $53.3 million at June
30, 2002 from $55.4 million at December 31, 2001. This decrease mainly
consisted of a decrease of $2.5 million in matured held-to-maturity
securities. These cash proceeds were used to fund the withdrawal of a
significant deposit account during the period ended June 30, 2002.
Deposits decreased $1.3 million, or 3.4%, to $36.4 million at June 30,
2002 from $37.7 million at December 31, 2001. The average yield on savings
accounts during that period was approximately 1.5%, while 182-day
certificates of deposit yielded approximately 2.9%. Brokered deposits
remained constant at approximately $7.3 million.
Advances from the Federal Home Loan Bank decreased $1.0 million, or 20.0%,
to $4.0 million at June 30, 2002 from $5.0 million at December 31, 2001.
The decrease is due to a $1.0 million note advance being paid off at
maturity in January 2002.
9
FIRST FEDERAL OF OLATHE BANCORP, INC.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Total stockholders' equity remained constant at $12.2 million. This was
mainly due to net income being offset by a purchase of treasury shares
during the quarter ended June 30, 2002. The Board of Directors authorized
the repurchase of 55,632 shares in both May and October 2001, as part of
its capital management strategy. The Company repurchased 17,255 shares
during the second quarter of 2002 at an average cost of $22.66 per share,
or a total cost of $391,052, in open market transactions.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2002 AND 2001
NET INCOME. Net income for the quarter ended June 30, 2002 was $165,924
compared to net income of $181,325 for the quarter ended June 30, 2001.
This represents a $15,401, or 8.5%, decrease. The decrease was driven
primarily by an increase in income tax expense for the period ended June
30, 2002. Income before taxes increased $22,199 or 8.3% in the three-month
period ended June 30, 2002. This increase was primarily due to a decrease
in compensation expense relating to the Recognition and Retention Plan
(RRP) that was approved by the Company's stockholders on April 25, 2001
and the Employee Stock Ownership Plan (ESOP). Total compensation expense
for the RRP decreased $92,328 or 65.9% to $47,479 for the three months
ended June 30, 2002 from $140,077 recognized during the same period in
2001. The large expense recognized in 2001 for the RRP was due to 20%
vesting of the total shares awarded on grant date of April 25, 2001. The
large expense recognized in 2001 for the ESOP was due to large pay downs
on the ESOP debt and the release of shares.
Basic earnings per share (EPS) remained consistent at $.35 for the
three-month periods ended June 30, 2002 and 2001. The Company's annualized
return on average interest-earning assets for the quarters ended June 30,
2002 and 2001 were 1.2% and 1.3%, respectively. The return on average
stockholders' equity amounted to 5.4% and 4.8% for the quarters ended June
30, 2002 and 2001, respectively.
NET INTEREST INCOME. For the quarter ended June 30, 2002, net interest
income decreased by $95,200, or 17.3%, to $453,615 from $548,815 for the
quarter ended June 30, 2001. The decrease reflects a decrease of $130,766,
or 12.0%, in interest income to $956,509 for the quarter ended June 30,
2002 from $1,087,275 for the quarter ended June 30, 2001, and a decrease
of $35,566, or 6.6%, in interest expense to $502,894 for the quarter ended
June 30, 2002 from $538,460 for the quarter ended June 30, 2001. The net
interest margin decreased to 3.3% for the second quarter of 2002, as
compared to 4.0% for the second quarter of 2001.
10
FIRST FEDERAL OF OLATHE BANCORP, INC.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Interest income decreased principally as a result of the decrease in
interest rates on interest-earning assets. The annualized yield on average
interest-earning assets decreased to 6.9% for the second quarter of 2002
from 7.9% for the second quarter of 2001, while average interest-earning
assets increased $.1 million to $55.2 million at June 30, 2002 from $55.1
million at June 30, 2001. The decrease in rates was partially attributed
to the Federal Reserve Bank lowering rates 11 times in 2001. In addition,
the average yield on loans deceased to 8.5% for the three months ended
June 30, 2002 as compared to 8.7% for the three months ended June 30,
2001.
The interest expense decrease is mainly attributed to the payoff of $1.0
million in advances due to the Federal Home Loan Bank in January 2002. The
interest expense on Federal Home Loan Bank advances decreased $30,116, or
33.5%, to $59,686 for the second quarter of 2002 from $89,802 for the same
period in 2001, which reflected the decrease in the average outstanding
balance of advances from the Federal Home Loan Bank.
Interest expense on deposits decreased $5,450, or 1.2%, to $443,208 for
the second quarter of 2002 from $448,658 for the same period in 2001,
which reflected the increase in the average outstanding deposit balances
to $38.2 million in 2002 from $33.2 million in 2001 and the decrease in
the average yield on deposits to 4.6% during the period ended June 30,
2002 from 5.5% for the same period in 2001. The decrease in the interest
rates on deposits is a result of the Federal Reserve Bank cutting rates
during 2001.
PROVISION FOR LOAN LOSSES. The allowance for loan losses was $175,000 at
June 30, 2002 and 2001. Although no additions were made to the allowance
for loan losses during 2002, management continues to closely assess the
loan portfolio for inherent losses and reports all loans greater than 30
days past due to the Board of Directors. In addition, detail review and
discussion occurs with management and the Board for those loans that
approach the 60 and 90 days past due levels.
At June 30, 2002 and December 31, 2001, the allowance for loan losses
represents .5% of net loans for each period. Non-performing loans at June
30, 2002 and December 31, 2001, represent 32.6% and 32.8%, respectively,
of the allowance for loan losses. Loans in the over 90-day category
amounted to $57,000 and $57,400, or 0.1 % and 0.1%, of total assets as of
June 30, 2002 and December 31, 2001, respectively.
NON-INTEREST EXPENSE. Non-interest expense decreased $130,940 to $169,230
for the quarter ended June 30, 2002 from $300,170 for the quarter ended
June 30, 2001. This decrease was principally due to compensation expense
recognized in the second quarter of 2002 in the amount of $25,585 on the
2001 Recognition and Retention Plan compared to $112,464 in the second
quarter of 2001 due to the immediate vesting of 20% of the shares awarded
on April 25, 2001.
INCOME TAXES. Income taxes increased by $37,600 to $125,100 for the three
months ended June 30, 2002 from $87,500 for the three months ended June
30, 2001. The effective tax rates were 43.0% and 32.5% for the three
months ended June 30, 2002 and 2001, respectively. The effective tax rate
increased mainly due to non-deductible ESOP compensation expense.
11
FIRST FEDERAL OF OLATHE BANCORP, INC.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2002 AND 2001
NET INCOME. Net income for the six months ended June 30, 2002 was
$351,153, as compared to net income of $449,312 for the six months ended
June 30, 2001. This represents a $98,159 or 21.8% decrease. This decrease
was due principally to the decrease of net interest income of $171,934,
driven by a drop in the net interest margins from 4.0% to 3.4%, and the
decrease in compensation expense related to the Recognition and Retention
Plan that was approved by the Company's stockholders on April 25, 2001.
Total compensation expense recognized under this Plan amounted to $50,890
for the six months ended June 30, 2002 and $112,464 for the six months
ended June 30, 2001. The large expense in 2001 was due to the 20%
immediate vesting of the shares awarded under the plan.
Basic earnings per share (EPS) amounted to $.73 for the six months ended
June 30, 2002 from $.87 in the same period of 2001. The Company's
annualized return on average interest-earning assets for the six months
ended June 30, 2002 and 2001 was 1.3% and 1.7%, respectively. The return
on average stockholders' equity amounted to 5.8% and 6.0% for the six
months ended June 30, 2002 and 2001, respectively.
NET INTEREST INCOME. For the six months ended June 30, 2002, net interest
income decreased by $171,934, or 15.8%, to $917,277 from $1,089,211. The
decrease reflects a decrease of $208,369, or 9.8%, in interest income to
$1,927,052 for the six months ended June 30, 2002 from $2,135,421 for the
six months ended June 30, 2001, and a decrease of $36,435, or 3.5% in
interest expense, to $1,009,775 for the six months ended June 30, 2002
from $1,046,210 for the six months ended June 30, 2001. The net interest
margin decreased to 3.4% during the first half of 2002, from 4.0% for the
first half of 2001.
Interest income decreased principally as a result of the decrease in
interest rates on interest-earning assets. The annualized yield on average
interest-earning assets decreased to 7.1% for the six months ended June
30, 2002 from 7.9% for the six months ended June 30, 2001, while average
interest-earning assets increased $.5 million to $54.5 million at June 30,
2002 from $54.0 million at June 30, 2001. The decrease in rates was
partially attributed to the Federal Reserve Bank lowering rates 11 times
in 2001. In addition, the average yield on loans deceased to 8.5% for the
six months ended June 30, 2002 as compared to 8.7% for the six months
ended June 30, 2001.
The interest expense decrease is mainly attributed to the payoff of $1.0
million in advances due to the Federal Home Loan Bank in January 2002. The
interest expense on Federal Home Loan Bank advances decreased $71,027, or
37.3%, to $119,171 for the six months ended June 30, 2002 from $190,198
for the same period in 2001, which reflected the decrease in the average
outstanding balance of advances from the Federal Home Loan Bank. The
decrease was offset by interest expense on deposits increasing $34,592, or
4.0%, to $890,604 for the six months ended June 30, 2002 from $856,012 for
the six months ended June 30, 2001, which reflected the increase in the
average outstanding deposit balances to $37.9 million in 2002 from $36.9
million in 2001 and the decrease in the average yield on deposits to 4.7%
during the six months ended June 30, 2002 from 5.1% for the six months
ended June 30, 2001. The decrease in the interest rates on deposits is
primarily a result of the Federal Reserve Bank cutting rates during 2001.
12
FIRST FEDERAL OF OLATHE BANCORP, INC.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PROVISION FOR LOAN LOSSES. The allowance for loan losses was $175,000 at
June 30, 2002 and 2001. Management deemed no additional provision was
necessary for the six months ended June 30, 2002 and 2001.
NON-INTEREST EXPENSE. Non-interest expense decreased $59,415 to $357,496
for the six months ended June 30, 2002 from $416,911 for the six months
ended June 30, 2001. This decrease was principally due to compensation
expense recognized for the six months ended June 30, 2002 in the amount of
$50,890 on the 2001 Recognition and Retention Plan compared to $112,464
for the same period in 2001.
INCOME TAXES. Income taxes decreased by $27,500 to $220,000 for the six
months ended June 30, 2002 from $247,500 for the six months ended June 30,
2001. The effective tax rates were 38.5% and 35.5% for the six months
ended June 30, 2002 and 2001, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Association's primary sources of funds are deposits, FHLB advances,
repayments on loans, the maturity of investment securities and interest
income. Although maturity and scheduled amortization of loans are
relatively predictable sources of funds, deposit flows and prepayments on
loans are influenced significantly by general interest rates, economic
conditions and competition.
The Association is required to maintain minimum levels of liquid assets
under the OTS regulations. It is the Association's policy to maintain its
liquidity portfolio in excess of regulatory requirements.
The Association's most liquid assets are cash and cash equivalents, which
include overnight deposits at First National Bank of Olathe and the FHLB
of Topeka. The levels of these assets are dependent on the Association's
operating, financing, lending and investment activities during any given
period. At June 30, 2002 and December 31, 2001, cash and cash equivalents
were $9.1 million and $8.6 million, respectively. The increase in cash and
cash equivalents at June 30, 2002, compared to December 31, 2001, resulted
primarily from an increase in deposits, factoring out the $2.5 million
customer withdrawal funded by $2.5 million in maturities of
held-to-maturity securities, offset by the payoff of a $1.0 million
Federal Home Loan Bank advance due in January 2002.
Liquidity management for the Association is both an ongoing and long-term
function of the Association's asset/liability management strategy. Excess
funds generally are invested in overnight deposits at the FHLB of Topeka
and the First National Bank of Olathe. Should the Association require
funds beyond its ability to generate them internally, additional sources
of funds are available through FHLB advances. The Association could pledge
its mortgage loans, FHLB stock or certain other assets as collateral for
such advances. At June 30, 2002, the Association had a balance of $4.0
million in FHLB advances. The Association had unused FHLB advances of
approximately $28.9 million at June 30, 2002.
13
FIRST FEDERAL OF OLATHE BANCORP, INC.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Association is required to maintain regulatory capital sufficient to
meet tangible, core and risk-based capital ratios of at least 1.5%, 4.0%
and 8.0%, respectively. At June 30, 2002, the Association exceeded each of
its capital requirements, with tangible, core and risk-based capital
ratios of 22.8%, 22.8% and 51.5% respectively.
IMPACT OF INFLATION AND CHANGING PRICES
The consolidated financial statements and related financial data presented
herein have been prepared in accordance with accounting principles
generally accepted in the United States of America, which require the
measurement of financial position and operating results in terms of
historical dollars, without considering changes in relative purchasing
power over time due to inflation. Unlike industrial companies, virtually
all of the Association's assets and liabilities are monetary in nature. As
a result, interest rates generally have a more significant impact on the
Association's performance than does the effect of inflation. Interest
rates do not necessarily move in the same direction or in the same
magnitude as the prices of goods and services.
14
FIRST FEDERAL OF OLATHE BANCORP, INC.
FORM 10-QSB
THREE MONTHS ENDED JUNE 30, 2002
PART II - OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
Neither the Company nor the Association is a party to any material legal
proceedings at this time. From time-to-time, the Association may be involved in
various claims and legal actions arising in the ordinary course of business.
ITEM 2: CHANGES IN SECURITIES
Not applicable
ITEM 3: DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On April 25, 2002, the Company held its annual meeting of stockholders to
consider the election of two directors of the Company and the appointment of
BKD, LLP as auditors of the Company for the fiscal year ending December 31,
2002. The results of the meeting were as follows:
> Marvin Eugene Wollen and Donald K. Ashlock were elected to serve as
directors of the Company for a three-year term with 464,461 votes
for, 2,000 votes withheld and no broker non-votes. In addition, John
M. Bowen, Carl R. Palmer and Mitch Ashlock are continuing to serve
their terms as directors.
> The appointment of BKD, LLP to act as the Company's auditor for the
fiscal year ending December 31, 2002 was ratified with 464,461 votes
for, 1,600 votes in abstention and no broker non-votes.
ITEM 5: OTHER INFORMATION
Exhibit 99.1 Officer's Certification
15
FIRST FEDERAL OF OLATHE BANCORP, INC.
FORM 10-QSB
THREE MONTHS ENDED JUNE 30, 2002
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
None
b. Reports on Form 8-K
None
16
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
FIRST FEDERAL OF OLATHE BANCORP, INC.
Date: August 12, 2002 By /s/ Mitch Ashlock
------------------- ------------------------------
Mitch Ashlock, President and
Chief Executive Officer
(Duly authorized officer and
principal executive and financial
officer)
EXHIBIT 99.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Mitch Ashlock, Chief Executive Officer and Chief Financial Officer of First
Federal of Olathe Bancorp, Inc. (the "Company") certifies in his capacity as an
officer of the Company that he has reviewed the quarterly report on Form 10-QSB
for the quarter ended June 30, 2002 and that to the best of his knowledge:
(1) the report fully complies with the requirements of Section 13(a) of
the Securities Exchange Act of 1934; and
(2) the information contained in the report fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
August 12, 2002 /s/ Mitch Ashlock
- -------------------- ---------------------------------------------------
Date Chief Executive Officer and Chief Financial Officer